PM insists he cannot 'hammer' banks

Prime Minister David Cameron answers questions from workers at the Greggs HQ during a visit to Newcastle

David Cameron has insisted he can not "hammer" the banks over their bonuses because he needs them to lend more to business and pay higher taxes to reduce the deficit.

The Prime Minister said there was part of him that wanted to "go after every penny" and "tax these bonuses to hell" - but added that the Government had to strike a balance.

The coalition has come under fire for failing to rein in City excess ahead of what is expected to be a bumper bonus season worth £7 billion.

Mr Cameron said it was right to have "a big argument" with the banks given that they were bailed out by the taxpayer at the height of the financial crisis. But, speaking during a question and answer session with voters in Newcastle, he maintained that getting the balance right was "not easy".

"There's part of me, like probably everyone in this room, that just thinks 'right, let's just go after every penny we can get out of these banks, let's tax these bonuses to hell, let's just get hold of the cash'. That would look good for a few weeks, maybe a few months, but actually what do we really want to do here?

"We want a growing economy that is creating jobs, and that means banks that are lending money to businesses."

The Treasury is in talks with banks about ensuring bonuses are smaller and more transparent and that lending is stepped up. Chancellor George Osborne insisted earlier this week that "nothing is off the table" if they did not come to an acceptable settlement.

However, there have been reports that even the heads of state-backed Lloyds and Royal Bank of Scotland are in line for multimillion-pound payouts.

Barclays chief executive Bob Diamond - said to be getting an £8 million windfall - fanned the flames by saying that neither Mr Cameron nor Mr Osborne had asked him to limit his bonus. He told MPs that the time for "remorse" was over.

Liberal Democrats have been angered that the Government has not taken a stronger line. Lib Dem peer Lord Oakeshott said: "This is the moment of truth on fairness for our coalition. We can't allow a bonus bonanza in the age of austerity."